By William Pope
History of Economic Thought
Since the financial crisis of 2008 many things have changed in the ways of how our government works, the way people run a business, and even the way people live their lives. Although some people may blame these events on former President George W. Bush or current President Barack Obama, much of the changes that have occurred have been from a single act, the Dodd-Frank Act. The Dodd-Frank Act, which was implemented after the financial crisis that occurred in 2008, is designed to keep businesses and firms honest.
The Dodd-Frank Act implements changes that affect the oversight and supervision of financial institutions, provides a new resolution procedure for large financial firms, creates new government agencies responsible for implementing and enforcing compliance procedures with consumer financial laws, introduces more stringent regulatory capital requirements, effects significant changes in the regulation of over the counter derivatives, reforms the regulation of credit rating agencies, implements changes to corporate governance and executive compensation practices, incorporates the Volcker Rule, requires registration of advisers to certain private funds, and effects significant changes in the securitization market. This is just a few of the things that this Act covers. Although the legislation calls for multiple studies to be conducted and specific rule making be made, we all are somewhat acquainted with the Dodd-Frank Act. The first thing that one may need to know about this act is that numerous government agencies are responsible for regulating financial institutions. People have noted that without a governing body to oversee the various agencies we will remain vulnerable to regulatory gaps and oversight failures. The Dodd-Frank Act created the Financial Stability Oversight Council, which oversees all financial institutions. The Financial Stability Oversight Council is headed by the Secretary of Treasury, and the members voting consist of the Federal Reserve, OCC, SEC, CFTC, FDIC, FHFA, NCUA, and the Bureau of Consumer Financial Protection. They’re also several independent members as well. The council has specific duties that they are obligated to accomplish as well, a few of which are collecting information that is necessary to assess risks to U.S. financial systems. Monitor the financial services market place and identify potential threats to U.S. financial stability as well as regulatory proposals affecting integrity, efficiency, and competitiveness. Require Federal Reserve supervision for nonbank financial companies that may pose risks to U.S. financial stability in the event of their material financial failure. Recommend heightened standards for nonbank financial companies and large interconnected bank holding companies supervised by the Federal Reserve. Various government agencies are regulating the financial industry with varying rules and standards, which have led to certain entities not being regulated at all and sum being subject to less oversight than other financial firms organized under different charters. Five new government agencies have been created because of this as well as the OCC regulating national banks and federal thrifts of all sizes giving them the power to make all rulemaking authority.
Another major part of the Dodd-Frank Act is Title VII, the Wall Street Transparency and Accountability Act of 2010. This will impose a large amount of regulations on derivatives and market participants. The financial crisis took many investors by surprise. It became clear that investors in certain financial products such as auction rate securities did not understand how the secondary market for such securities functioned. Ponzi schemes like Bernie Madoff had been exposed at a rapid pace and clients lost faith in those with custody of their securities and funds. Congress aimed at increasing...